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Friday, May 20, 2022

Marin Scam Scheme Leads to $437 Million Real Estate Sale

The fallout from a massive fraud scheme by Marin’s investment managers resulted in a $436.5 million sale of North Bay real estate.

The sale involved 60 sites previously controlled by Professional Financial Investors Inc. and its associated Professional Investors Security Fund Inc. The director, Ken Casey of Novato, died in 2020.

The 1.4 million-square-foot property was sold last month in federal bankruptcy court. Their properties range from 3,500 to 85,000 square feet, including 935 residences and about 680,000 square feet of commercial space.

“This is one of the largest portfolio sales in our county’s history,” said Hayden Ongaro, executive vice president of real estate agency Newmark Knight Frank.

At the height of the scam, Casey and business partner Lewis Wallach amassed 80 major properties: 29 in Novato, 10 in Sonoma, and the rest scattered throughout the Marina.

Wallach pleaded guilty to federal fraud charges in 2020. He admitted that he knew that the companies had stopped making profits, but continued to acquire real estate and assure investors of their financial stability. Companies attracted new investors whose payments were used to pay interest to existing investors.

All 60 properties sold in the bankruptcy went to two Bay Area real estate affiliates, Hamilton Zanze and Graham Street Realty, and New York-based investment firm Davidson Kempner Capital Management.

“We look forward to investing more than $50 million in these properties located in our communities,” said Ashley Kabil, Chief Financial Officer of Hamilton Zanze.

It is planned that more than half of the $50 million will be invested in the portfolio’s residential real estate.

The bankruptcy sale has disappointed some of the 1,300 Ponzi scheme investors, most of whom are Marine residents.

“Many questions were asked about real estate portfolio marketing that were never answered,” said Betsy Alberti, who lived in Marina before retiring to Port Angeles, Washington in 2018.

Alberti said that in July 2020, the remaining assets were valued at $555 million.

“That’s over $100 million that has evaporated in a year,” she said.

Potential buyers of the property have been selected to submit what is known as a “stalking application”. In the event of bankruptcy, the entity is usually selected from a pool of bidders to make the first bid on the remaining assets. This predicted rate is used as a minimum estimate with the expectation that subsequent rates will be higher. In this case, however, there were no higher rates.

Some investors also question the wisdom of bundling commercial and residential property into one package, especially as commercial property values ​​have been hit hard by the COVID-19 pandemic.

Alberti, who put $250,000 into Casey’s scheme, said she was one of the small investors.

“A large number of investors are older people who can no longer work and have lost most of their retirement savings,” Alberti said.

Alberti said investors were also surprised at how much professional fees associated with the bankruptcy have increased.

“At first we were told the fees would be between $10 million and $15 million,” Alberti said. “At the end of the process, we expect $30 (million) to $40 million in professional fees.”

Alberti said some investors, including herself, also believe there were people other than Casey and Wallach involved in the conspiracy.

“We have accomplices who have not been charged, but they still live in grand style,” Alberti said. “They live in houses that have been bought by the company.”

“Basically, they didn’t have to give up their lifestyle,” she said, “while many of the 1,300 investors lost their homes. They went on food stamps. There are people who have died from the trauma of this Ponzi scheme.”

Andrew Hinkelman, senior managing director of Troy, Michigan-based FTI Consulting, who was the chief bankruptcy restructuring officer, declined to comment.

But a legal statement by Gregory Gotthardt, also FTI’s senior managing director, details the portfolio sale process and marketing efforts.

Gotthardt wrote that “FTI logged over 70 hours of direct telephone contact with over 80 potential buyers.”

“Many investment groups have rejected the portfolio as ‘non-institutional’, meaning that the properties did not match their size and quality to meet their investment criteria,” he wrote.

Gotthardt said other investment groups have lost interest due to adverse conditions such as low occupancy due to COVID-19, delayed maintenance and flooding concerns.

“The FTI analysis indicated that the probable market price of the portfolio was significantly lower than indicated by the many pre-bankruptcy broker price opinions obtained by the previous chief restructuring officer,” which valued the portfolio in the range of $543 to $567. million,” he wrote.

“It became apparent that the firms that issued opinions on broker prices had little or no detailed information about the true operating performance of real estate,” he wrote.

World Nation News Deskhttps://www.worldnationnews.com
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